During Groupon's (NASDAQ:GRPN) last earnings release, CEO Rich Williams wrote a lengthy letter to shareholders, describing in detail the company's massive challenges, along with all of the things his team is doing to offset them.

Groupon's largest obstacle has been the decline of email "push" marketing, which used to account for nearly 100% of Groupon's business. Today, however, email marketing has declined, and accounts for only about 20% of the business. That's a massive decline that Williams and his leadership team have had to combat with newer products, marketing, and services over his three-year tenure.

So far, Williams' efforts have succeeded in stabilizing the business and boosting profitability. By exiting many international markets and focusing on costs and gross profit over revenue, Groupon has managed to grow gross profit dollars over the past three years (albeit slightly), while cutting $200 million in selling, general, and administrative costs -- and nearly half of its employees.

While this is all good news for shareholders, Groupon still faces challenges, and Williams was refreshingly honest in pointing them out to shareholders. Here's what investors should look for when the company reports earnings on Feb. 12.

A cartoon pair of hands touches a smartphone screen displaying an icon of a shopping cart

Can Groupon return to growth in 2019? Image source: Getty Images.

Adjusted EBITDA of $280 million to $290 million

Since Williams' strategy eschews unprofitable revenue, management has instead guided investors toward an "adjusted" EBITDA target of $280 million to $290 million for full-year 2018. That EBITDA figure would represent impressive 12% to 16% growth over 2017. It's also in stark contrast to the company's revenue line, which has actually been declining.

Of course, one shouldn't necessarily correlate that EBITDA figure with earnings -- embedded in that number are roughly $70 million in stock-based compensation and $44 million in "other" expense, including interest and restructuring and acquisition charges. Those are real costs to shareholders, so I'd be skeptical of valuing the company based on this "adjusted" figure.

Nevertheless, it will be interesting to see how Groupon does relative to its own expectations, which will act as a benchmark against which Williams' execution can be measured.

Check out the latest Groupon earnings call transcript.

User growth (or lack thereof)

One of the concerns I've had about Groupon over the past year has been its falling user base. Groupon's user count peaked in the first quarter of 2018 at 49.6 million active members, before falling to 49.3 million in Q2 and then 48.8 million in Q3.

Williams addressed this head-on in his letter, saying that his team is more actively using data to focus only on higher-value customers who have the propensity to spend more often. There is some credibility to this, as gross profit per customer improved from $27.16 to $27.51 since Q1, when the company's user count peaked.

Therefore, investors should keep an eye on the active user count number in combination with gross profit per user. User stabilization would be a positive, but should the company continue to post user declines, gross profit per customer had better be increasing.

Groupon+ adjustments

One of the key pillars of Williams' transformation is Groupon+. Groupon+ is the company's new voucherless offering, whereby customers can link offers directly to their credit cards, and receive discounts without having to print out and show a voucher.

As of Q3 2018 -- one year after the offering was ramped up in Q3 2017 -- Groupon+ had grown to 6 million linked cards and 6,000 accepting merchants. The company saw 1.3 million Groupon+ redemptions last quarter, up 500% year over year.

Investors should monitor not only the continued progress of Groupon+ users, accepting merchants, and redemptions, but also the effect of that progress on revenue and gross profit. Groupon+ is recorded as revenue upon redemption, whereas Groupon's traditional voucher is recorded when purchased (before redemption). That delay could be a headwind to revenue and profit; last quarter, Groupon+ adoption actually lowered gross profit by about 200 basis points.

So don't be scared off by underwhelming headline revenue and gross profit numbers, until you hear management's commentary on how those figures were affected by Groupon+ adoption. In fact, strong Groupon+ adoption, while a long-term positive, could actually make these numbers slightly worse.

Turning a tanker around

Groupon is an interesting case, in which a highly capable management team is trying to turn around an "old" internet company for the modern age. That doesn't always work.

Still, Williams said he would write shareholder letters every quarter, and his first was refreshingly (if not painfully) honest. Investors should pay close attention to his overall take on the business, as well as adjusted EBITDA targets, user growth and profitability, and the progress of Groupon+.